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Asbestos - Legislative Update

Asbestos - Legislative Update. Casualty Loss Reserve Seminar Las Vegas September 13, 2004. Jennifer L. Biggs, FCAS, MAAA. Concerns in the Current System (1). Plaintiffs should demonstrate injury to file a claim The number of claim filings has increased dramatically

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Asbestos - Legislative Update

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  1. Asbestos - Legislative Update Casualty Loss Reserve SeminarLas VegasSeptember 13, 2004 Jennifer L. Biggs, FCAS, MAAA

  2. Concerns in the Current System (1) • Plaintiffs should demonstrate injury to file a claim • The number of claim filings has increased dramatically • 2003 claim filings against the Manville Trust exceeded 100,000 • Fewer than 10% of claims are malignant • Per RAND, ⅔ to ¾ are unimpaired • The right to seek recovery if/when an injury manifests should not be limited • Each claim should stand on its own merit • Restrictions on mass consolidations • Venue should be controlled • Avoid forum shopping in “magic jurisdictions”

  3. Surge in Claim Filings Note: Excludes Non-U.S. claims

  4. 100 MD Other states 80 TX 60 Percent IL NJ OH 40 MS PA WV 20 NY CA 0 Evidence of Forum Shopping Source: RAND, January 2003

  5. Concerns in the Current System (2) • A low percentage of total payments have reached the claimants. Per RAND: • 30% - defense transaction costs • 29% - plaintiff attorney fees and legal costs • 41% - to claimants • Resources are limited • 74 defendant companies have sought bankruptcy protection • But defendant pool has increased to ~8,400 • Future sick may not be compensated

  6. Number of Asbestos Related Bankruptciesper Year Note: Graph excludes a bankruptcy in 1976.

  7. What Are Potential Federal Solutions? Asbestos-Related Bills Introduced into the 108th Congress: • 6 relating to asbestos reform • HR1114 – Kirk (R-IL) – office of Asb. Comp./court • HR1586 – Cannon (R-UT) – court • HR1737 – Dooley (D-CA) – court • S413 – Nickels (R-OK) – court • S1125 / S2290 – Hatch (R-UT) – trust • 2 to ban the use of asbestos • HR2277 – Waxman (D-CA) • S1115 – Murray (D-WA) • 1 to change the tax code, such that asbestos-related settlement funds would be exempt from tax • HR2503 – Collins (R-GA)

  8. Senate Bill 1125 • Introduced May 2003 • No Fault System • Initially called for a privately funded trust totaling $108 billion comprised of: • Insurers - $45B • Defendant companies - $45B • Current bankruptcy - $4B • Voluntary contributions - $14B • Funding contribution • Insurers still negotiating; subject to insurer commission • Defendants grouped to tiers based on historical payments • Separated into sub-tiers based on revenues

  9. Potential Insurer Allocation • Insurers include U.S. and Non-U.S. companies • Insurer funding is net of third party reinsurance • Gross of financial cover • Initial discussions based on a blended approach • Market share – premium and paid losses • Future exposure – carried reserves • More recent discussions focused on an industry-wide ground-up study • Insurer funding is concentrated • 12 insurers likely to contribute 75% • 20 insurers likely to contribute 90%

  10. Initial Quantification of the Economic Impactof S1125 – 6/4/2003 Hearing • Is proposed Trust Fund of $108B adequate? • Tillinghast Projections Released May 2001: • $200B Ultimate Loss & Expense • Less $70B paid as of 12/31/2002 (est. by RAND) • Equals $130B of future payments • Reduced for frictional costs • $61B expected to reach claimants • Conclusion is consistent with RAND: transaction costs have consumed more than half of total spending

  11. Initial Quantification of the Economic Impactof S1125 – 6/4/2003 Hearing • Reflect specific indemnity awards under S1125 • Future claims to be be filed from 2003 - 2049 • Pending claims to be re-filed • Initially eight Disease Levels consistent with the Manville 2002 TDP • Specific awards by Disease Level • $0 for Levels I-II to • $750,000 for Level VIII (meso) • Tested various scenarios - all at or below $108B

  12. Senate Bill 1125 - Compromises • S1125 passed out Senate Judiciary Committee on July 10, 2003 (10-8) with significant compromises • Revised medical criteria – 10 Disease Levels • Revised awards ($20,000 for Level II to $1 million for Level X) • Department of Labor to process claims • Remaining deal-breakers: • Size of the fund • Start-up / pending claims • Finality / sunset provisions

  13. Progression of Trust Fund (S1125 / S2290) • S2290 is an updated version of S1125 • Introduced April 7, 2004 • Frist funding - $124B • Specter process agreements • Administrative structure • Expedited start-up • Expedited judicial review • Modified sunset • Moratorium • Return to federal court

  14. Outcome of S2290 • 4/22/2004 – Senate did not obtain 60 votes needed to invoke cloture for debate before the full Senate • 50 Yea / 47 Nay • 5/6/2004 – Further negotiations mediated by Chief Judge Emeritus Edward Becker of the Third Circuit U.S. Court of Appeals ended without agreement • Defendants / Insurers offer $116B + $12B contingency = $128B • Demand by AFL-CIO remains at $134B + $15B contingency = $149B • However, Frist / Daschle still committed to continuing to work to determine whether a compromise can be reached …

  15. Most Significant Outstanding Issues • Compensation levels and projections of claim filings • April CBO estimate = $140B over 50 years • Daschle late-June proposal of $141B(+$4B from existing trusts = $145B) • Frist mid-July proposal of $140B(=$136B + $4B from existing bankruptcy trusts) • Demand by AFL-CIO remains at $149B • Insurers remain at 2003 offer of $46B

  16. Most Significant Outstanding Issues • Start -Up • Daschle would allow cases with a trial date to proceed in court • Frist would have all existing claims revert to the fund, except where there has been a final judgment • Finality?

  17. Senator Feinstein’s Draft Proposal • Draft Proposal • $144B Fund (including existing trusts) • Would require pending cases to be funneled into the trust fund • Except those with verdicts or enforceable settlements • Sickest could return to court if not operational in 90 days • Non-starter for defendants / insurers • Accelerated contributions • No workers compensation carveout • No finality - claims revert to court if trust runs out

  18. Is Federal Legislation Dead? • Factors to consider • Specter still pushing, but little time • 9/11 commission, budget / appropriations • Elections • Any greater likelihood next year? • Defendant / insurer commitment? • Other priorities (e.g., TRIA) • Resources • More bankruptcies • State tort reform

  19. State Reform Efforts • Efforts at federal reform have drawn attention to abuses in the current system (e.g., claims by the unimpaired) • Several states aren’t waiting for a federal solution and recently have enacted various reforms • Mississippi • New York • Ohio • Texas • West Virginia

  20. State Reform Efforts • Focus on medical criteria / statute of limitations • Medical criteria established in Ohio • Inactive dockets being considered / created in several jurisdictions (e.g., Boston, NYC, Syracuse, Seattle, Madison County, IL) • Penalties for frivolous lawsuits (e.g., MS, TX) • Focus on forum shopping / consolidations (e.g., MS, TX, WV) • Focus on joint and several liability (e.g., NY) • Other issues: innocent sellers, successor liability, caps on non-economic and punitive damages

  21. How Will It End? • Reform • Federal vs. one jurisdiction at a time • Will Ohio hold, Texas be enforced, ….? • How portable are the claims? • Judicial System • Elections • Getting back to the basics • Adequate discovery • Trying cases

  22. Jennifer L. Biggs Ms. Biggs is a co-author of Tillinghast’s study regarding the asbestos “universe,” first presented on May 30, 2001 to the RAA Education Conference and the Casualty Actuaries of the Mid-Atlantic Region (CAMAR). She is a consulting actuary with the Tillinghast business of Towers Perrin in its St. Louis office. She is a principal of the firm. Ms. Biggs is a member of Tillinghast’s asbestos and environmental practice area. She coordinates research and development activities relating to asbestos and has quantified reserve needs for asbestos, pollution, and breast implant liabilities for insurance and reinsurance companies. Ms. Biggs has also been active in the firm’s asbestos and environmental reinsurance placement initiative. Under her direction as Chairperson, the American Academy of Actuaries Mass Tort Work Group created a Public Policy Monograph: Overview of Asbestos Issues and Trends, which was released in December 2001. Ms. Biggs is a frequent speaker and has testified before the United States Senate Committee on the Judiciary and the National Conference of Insurance Legislators (NCOIL) regarding asbestos issues. Ms. Biggs also has significant experience in the professional liability area. Her work includes analyses of funding requirements, self-insured retention limits, and allocation systems for self-insured trust funds of several hospitals. She also performs reserve evaluations, opining on year-end statutory reserve levels for physician insurers. Additionally, she has assisted insurers by analyzing rate levels and preparing filing materials for entry into new states. Prior to relocating to Tillinghast’s St. Louis office in 1988, Ms. Biggs spent almost four years in Tillinghast’s Bermuda office. There she gained considerable experience in financial reinsurance, performing pricing analyses for loss portfolio transfers. Most other assignments were related to loss reserving for reinsurance and captive insurance companies. Ms. Biggs is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Ms. Biggs graduated with college honors from Washington University in St. Louis with a B.A. in mathematics and a business minor. jenni.biggs@towersperrin.com(314) 719-5843

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